Global Economics

"Chaos" for EU Carbon Emissions Scheme

The EU Emissions Trading Scheme was thrown into "chaos" on May 12, after a European Commission website appeared to publish emissions data that had originally been scheduled to be circulated May 15.

The data first appeared at the Carbon Expo conference, where it was reportedly discovered on the European Commission's Community Independent Transaction log, and shortly afterwards it reached the trading market.

The European Commission initially denied that the data cited in the reports was genuine, though later in the day the Commission was saying it would issue a press release concerning the data. Later, a Commission spokesperson told Platts that the EC could not officially publish the data until May 15, but could not explain the data's availability on the CITL. The source also indicated the data shown in the table is "correct.

Prices reacted violently to the data, which showed the 21 member states that have reported verified emissions data to have emitted a total of 67.5 million mt less CO2 than their combined emissions "caps."

EU emissions Allowances (EUAs) for December 2006 delivery had been trading at around ??11 at the time the news leaked, market sources reported, but immediately crashed to a day's low of ??8.60 as the degree of excess allowances in the system encouraged many traders to offload length.

The market later recovered to end the day at ??9.25, but market sources cautioned that a great number of participants may have been away from their desks the afternoon of May 12 and did not have a chance to react to the news. "There may be some more selling come Monday [May 15]," said one trader at a UK utility.

Sources also noted that EUAs for December 2008 delivery -- which is the first contract in the EU Emissions Treading Scheme's second phase, were more resilient in the face of the sell-off. "2008 had already sold down to around ??17.00, and they stayed there for the rest of the day," said one.

Traders speculated that the reason for the December 2008 contract's relative strength lay in the fact that most sources believe that a poor performance by member states in Phase 1 (2005-2007) will lead the European Commission to make deeper cuts in emissions caps in Phase 2.

The market has been under immense pressure since mid-April, when sources in the Netherlands, France, Spain, Sweden and the Wallonia region of Belgium all indicated that their countries had performed much better than expected. Prices crashed from ??30.475 on April 19 to ??11.475 on May 2 as these successive leaks battered market confidence.

Even before the latest "debacle," as one trader termed it, the Commission was coming under heavy pressure to establish a clear set of rules on disclosure of market-sensitive data, and the events of May 12 will only harden the resolve of those who are insisting the Commission take action.

Peter Koster, chief executive of the European Climate Exchange, said on May 12 that the Commission must set standardized rules for the issuing of such data. On May 11, Jean-Francois Conil-Lacoste, head of the Powernext exchange, said he regretted the "disorganized and piecemeal manner" in which the data had been published.

"A complete news broadcast for all member states could possibly have had a netting effect, reducing price volatility," he added.